SMM Morning comments (Feb 17): SHFE Base Metals Mostly Edged up Overnight amid Falling Warrants Inventories

SHANGHAI, Feb 17 (SMM) – Shanghai base metals basically moved upward amid falling warrants inventories. Their counterparts on LME trended mixed on Wednesday.

LME copper fell 0.19%, aluminium rose 1.75%, lead increased 1.75%, and zinc dropped 0.51%.

SHFE copper rose 0.24%, aluminium gained 0.64%, lead advanced 0.88%, and zinc fell 0.24%.

Copper: LME copper prices opened at $10,028.5/mt in the overnight trading, then briefly rebounded after reaching a lower level of $9,940 mt. At last, the prices closed at $9,955/mt, down 0.19%. Trading volumes stood at 10,000 lots and open interest stood at 257,000 lots.

The SHFE 2203 copper contract opened at 71,550 yuan/mt, then rose after dropping continually to 71,230 yuan/mt. At last, the prices closed at 71,560 yuan/mt, up 0.24%. The open interest reached 122,000 lots.

On macroeconomy, the minutes of the overnight US Fed meeting were announced. It might accelerate the pace of policy tightening, but no specific time and scale for raising interest rates were set, which fell short of expectations. At night, the US dollar index went down, and the geopolitical tensions between Russia and Ukraine gradually eased, which rose the copper prices. On the first trading day of the delivery, the trading was inactive and slack, and there were still great odds over prices between buyers and sellers. Sellers held firm to prices and were unwilling to sell at low prices when the supply was tight. Also, buyers lowered the prices for a small amount of goods because the downstream resumption of production continued to fall short of expectations. Thus, spot premiums rose slightly and slowly. SMM expects that LME copper will trade between $9,900-10,000/mt today. SHFE copper prices are expected to move between 71,000-71,600 yuan/mt. Spot premiums are likely to fluctuate between 100-200 yuan/mt.

Aluminium: LME aluminium opened at $3,191/mt on Wednesday and closed at $3,250/mt, an increase of $56/mt or 1.75%.

Overnight, the most-traded SHFE 2203 aluminium contract opened at 22,745 yuan/mt, with the highest and lowest prices at 22,775 yuan/mt and 22,570 yuan/mt before closing at 22,760 yuan/mt, up 145 yuan/mt or 0.64%.

The downstream purchases of spot aluminium ingots in Wuxi and Gongyi picked up significantly. Spot discounts in east China narrowed 30 yuan/mt to around 10 yuan/mt. The short-term aluminium price will remain high.

Lead: Three-month LME lead opened at $2,301.5/mt on Wednesday, and fluctuated between $2,280-2,300/mt, before closing at $2,349/mt, up 1.75%. During the trading, it hit the highest level at $2,350/mt as the LME lead stocks dropped by 1,000 mt and the US dollar index declined. Lead stocks across LME-listed warehouses fell 1,050 mt from the previous day to 49000 mt.      

The most-liquid SHFE 2204 lead contract opened at 15,445 yuan/mt yesterday and increased 0.88% to settle at 15,490 yuan/mt with open interest increasing 4,924 lots to 38,041 lots. The warrants inventory on the SHFE was 83,817 mt, a decrease of 405 mt from the previous day.

Zinc: Three-month LME zinc hit the highest point at $3,627.5/mt on Wednesday and closed 0.51% lower at $3,580/mt. LME zinc inventory decreased by 1,375 mt to 149,350 mt. The market is focusing on the tension between Ukraine and Russia, while the slump in European natural gas prices may ease the pressure on European smelters and increase the output of zinc ingots. Zinc prices will continue to fluctuate. LME zinc is expected to move between $3,580-3,630/mt on Thursday.

SHFE zinc hit a lowest level at 24,860 yuan/mt in the overnight trading at closed at 24,975 yuan/mt, down 60 yuan/mt or 0.24%. The prices are more affected by the macroeconomics than the fundamentals. The SHFE zinc is expected to trade between 24,900-25,400 yuan/mt today, and spot premiums for domestic Shuangyan zinc will be seen at 30-40 yuan/mt.

Nickel: Nickel futures fluctuated within a narrow range between the daily moving average and the 10-day average line in the evening. In terms of fundamentals, on the supply side, arrivals in the spot market increased, so that the spot premium declined slightly. However, nickel spot premium was still high, and LME inventory was going to destocking. On the demand side, the recovery of production in downstream nickel sulphate and stainless steel companies supported the demand of nickel. The basic supply and demand was supported by the nickel price. However, attention should be paid to the production and release of overseas high nickel matte during the later period.

Tin: Overnight, SHFE tin prices were rangebound amid strong wait-and-see mood. Inventory under warrants decreased slightly. SHFE tin will continue to hover at highs.